ACH stands for automated clearing house. An ACH is a network that connects financial institutions, businesses, consumers, and government agencies, enabling them to send money to each other electronically. There are many different ACHs throughout the world. For example, Switzerland uses an ACH called Swiss Interbank Clearing, while Japan uses Zengin. The ACH in the United States is known simply as the ACH Network.
The ACH Network is overseen by Nacha (previously known as NACHA, which stood for the National Automated Clearing House Association).
Paying by ACH means your money will go wherever you need it to using the ACH Network. ACH payments are now one of the most common ways to send and receive money. You can even set them up using your smart phone. Nacha reports that nearly $62 trillion passed through the ACH Network in 2020 alone.
You can make an ACH payment one of two ways:
1. Allow the payee to take funds out of your account. Let’s say you’d like to pay your car insurance by ACH. You can do this by giving the insurance company your account and routing numbers. Then, they can use the ACH Network to take the money out of your account—kind of like an electronic check.
2. Send the funds to the payee yourself. Another way you could pay your insurance bill is by using your financial institution’s bill pay service (if available). This would enable you to send a payment to your insurance company instead of having them take the money from your account. The bill pay service may give you the option to send the payment electronically or as a paper check. If sent electronically, the funds will be sent using the ACH Network. You will need to provide the payee’s account and routing numbers so the network can send your payment to the right place.
As mentioned earlier, the ACH Network isn’t just a way to send money—it also allows you to receive money. Each time your payroll, tax refund, or social security is direct-deposited to your account, it arrives by ACH. According to Nacha, about 93% percent of American workers currently receive their payroll by direct deposit.
It can sometimes take a few days for an ACH transaction to get from point A to point B. They can be processed as same-day, next-day, or 2-day transactions. However, not all financial institutions or other companies offer the option to send same-day ACH payments. This is because they must pay for that service. If they do offer same-day services, it is not unusual for the cost to be passed on to the person sending the ACH payment.
An ACH payment must be submitted within a certain time frame in order to arrive at its destination when you’d like it to. For example, if you wish to pay your power bill by ACH and you want the payment to leave your account as soon as possible, you must submit the payment before your credit union’s or bank’s cutoff time. The cutoff time is the time of day when your financial institution stops sending out ACH payments. Additionally, weekends and holidays can prolong a payment’s processing time. This is because all ACH transactions must pass through the Fed before they reach their destination. This cannot happen while the Fed is closed.
As long as you plan ahead and consider that it may take up to a few days for your payment to get to its destination, the ACH Network offers a convenient way to send and receive money. Reach out to your financial institution with questions about what kind of ACH services they offer and their cutoff times.